Independent Contractor Compliance Blog

How to Determine If You Are Misclassifying Your Consultants

There is no magic formula to decide if an independent contractor (IC) is properly classified. However, there are some universal red flags that indicate a possible misclassification. Here is a short quiz that you can use to get an indication if your company is at risk of misclassifying consultants.

Review the questions for each individual you have classified as an IC.

Answer ‘Yes’ or ‘No’ to the following:

1. Has the consultant’s contract been extended or renewed, either formally or informally, several times?

2. Do you provide the consultant with a work station?

3. Do you provide the equipment needed to do the job (a computer, software, office supplies, or other tools)?

4. Do you pay the consultant’s expenses?

5. Do you decide what hours the consultant will work?

6. Is the consultant required to submit reports on time and activities?

7. Did you train the consultant how the job is to be performed (other than a general orientation to your company)?

8. Do you pay the consultant to rework the job when it doesn’t meet your expectations?

9. Do the duties or tasks vary for the consultant depending on the needs of the company?

10. Is your company the consultant’s only client (i.e. the consultant either dropped his other clients, or never had other clients)?

11. Is the consultant expected to attend regular meetings not related to the project?

12. Was the consultant once your employee and now does substantially the same job, under similar working conditions, as your IC?

Scoring

Questions 1 through 5: These are medium weighted factors in most cases. If you answered yes to at least four of these questions, there is a possibility the consultant is misclassified.

Questions 6 through 12: These are usually more heavily weighted factors. If you answered yes to two or more questions, plus yes to any two or more from questions 1 through 5, there is a substantial risk your consultant is misclassified.

Did you come up with a potentially misclassified worker? Don’t worry too much yet. Quizzes are too generic to replace an expert’s evaluation. This quiz does not include every factor that needs to be looked at. Also, there is no set prescription when it comes to worker classifications.

This area of law is very complex and it takes an expert to make the right decision. You want to set up an IC relationship properly so that it withstands scrutiny. Many times the decision can turn on a set of obscure details. To be sure, you will need a complete qualification review by an expert.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

 

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